International Business Law

The United States is one of 80 countries that have adopted the United Nations Convention on Contracts for the International Sale of Goods (CISG). The CISG governs the formation and interpretation of sales contracts between companies with places of business in separate CISG countries. Although there are many similarities in the legal rules established under the CISG and our homegrown Uniform Commercial Code, there are also some important differences and occasionally some surprises.

Globalization and immigration mean increasing numbers of U.S. persons own assets outside of the United States. These assets may be business interests or other investments in foreign countries that generate interest, dividend or capital gain income; they may include bank accounts, insurance products, securities, or commercial real estate. Because U.S. citizens are subject to taxation on their worldwide income, these interests and investments, though outside the borders of the United States, may be subject to a bewildering alphabet-soup of acronyms representing reporting, withholding and payment obligations. Some highlights are that:

If your business exports products, technology, and/or software that are subject to the International Traffic in Arms Regulations (ITAR) or the Export Administration Regulations (EAR), then you should consider the implementation of an Export Control Plan (ECP). This post discusses the proper foundation of an ECP. Although such a plan is not mandated by ITAR or EAR, it is a valuable proactive measure that can save your business millions of dollars it might otherwise spend in penalties to the United States government.

The Foreign Corrupt Practices Act (FCPA) includes two primary components: (1) the anti-bribery provisions, and (2) the recordkeeping and internal controls provisions. This post will discuss the recordkeeping and internal controls provisions, which prohibits the false characterization of payments. The purpose of the FCPA is to prevent a company from hiding bribes and other improper transactions. However, the recordkeeping and internal controls provisions apply no matter if the record is linked to bribery of a foreign official or not. In addition, there is no minimum dollar amount that triggers the FCPA: from $1.00 to $1 million, your recordkeeping must accurately reflect the transaction.

The Foreign Corrupt Practices Act (FCPA) includes two primary components: (1) the anti-bribery provisions, and (2) the recordkeeping and internal controls provisions. This post will discuss the primary exception and affirmative defenses to the FCPA.

The Foreign Corrupt Practices Act (FCPA) includes two primary components: (1) the anti-bribery provisions, and (2) the recordkeeping and internal controls provisions. This post will discuss the anti-bribery component, which prohibits the offer or payment of money or anything of value to a foreign official to obtain or retain business. It is important for companies to realize that the phrase anything of value is construed broadly and is not limited to money. In addition, there is no minimum value that would exempt a payment or gift from the anti-bribery provisions of the FCPA.

A broker is defined under the International Traffic in Arms Regulations (ITAR) as any person who acts as an agent for others in negotiating or arranging contracts, purchases, sales, or transfers of defense articles or defense services in return for a fee, commission, or other consideration. 22 CFR 129.2(a) Brokering activities include acting as a broker, as previously defined, and includes the financing, transportation, freight forwarding, or taking of any other action that facilitates the manufacture, export, or import of a defense article or defense service, irrespective of its origin. 22 CFR 129.2(b). If your company performs these activities, then ITAR applies and it must comply with the ITAR obligations for brokers.

Shipments of defense articles by and to United States government facilities or personnel in foreign countries are generally not exempt from adhering to the International Traffic in Arms Regulations (ITAR) because such shipments constitute exports, for ITAR purposes. However, ITAR provides some exemptions for shipments involving the Government. 22 CFR 126.4 states that [a] license is not required for the temporary import, or temporary export, of any defense article, including technical data or the performance of a defense service, by or for any agency of the U.S. Government (1) for official use by such an agency, or (2) for carrying out any foreign assistance, cooperative project or sales program authorized by law and subject to control by the President by other means.

Many companies mistakenly assume their products are not subject to the International Traffic in Arms Regulations (ITAR). At first glance, the phase "defense-related products" can be deceiving. The reality is that items subject to ITAR may be difficult to identify. Despite this fact, a violation of ITAR can be an extremely costly mistake. Penalties for violations of the ITAR can reach into millions of dollars and can even include prison time. Therefore, ITAR compliance is becoming increasingly important to companies that manufacture, export, or broker in defense articles.

On August 18, 2011, President Obama signed an executive order imposing additional sanctions on Syria. These sanctions block all assets of the Syrian Government subject to the jurisdiction of the U.S. In addition, all U.S. persons are prohibited from exporting or reexporting services to Syria and operating or investing in Syria. All imports of Syrian-origin petroleum or petroleum products are banned, and U.S. persons are prohibited from having any dealings in or related to Syrian-origin petroleum or petroleum products. These sanctions will immediately supplement the strict sanctions already imposed on Syrian exports/imports. Along with these additional sanctions, the Treasury Departments Office of Foreign Assets Control (OFAC) also added several Syrian energy companies to the List of Specially Designated Nationals. U.S. persons must refrain from engaging in any transactions with such parties or risk the imposition of a hefty penalty.

This post is the third iteration in a series regarding the Antiboycott Provisions of the Export Administration Regulations (EAR). An overview of the prohibitions included within the antiboycott provisions can be found here, and a detailed discussion of the reporting requirements of the antiboycott provisions can be found here. This post addresses the specific exceptions to the antiboycott provisions of the EAR. Once you have determined that the antiboycott provisions of the EAR apply to your company, then you should become familiar with the exceptions listed in 15 C.F.R. 760.3 of the EAR, which can be found here.

This post is a follow up to my last post regarding the Antiboycott Provisions of the Export Administration Regulations (EAR). Pursuant to the antiboycott provisions of the EAR, companies are required to report certain conduct to the U.S. government. For instance, if your company receives a request to take an action that has the effect of furthering or supporting a boycott, then such a request must be reported, regardless of whether your company intends to comply with this request. However, 15 C.F.R. 760.5, which can be found here, includes a list of requests that are not reportable.

The Antiboycott Provisions of the Export Administration Regulations (EAR) are yet another set of prohibitions that exporters must be aware of and comply with at all times. The antiboycott provisions are aimed at preventing U.S. persons from taking actions to further, endorse, or support foreign governments economic boycotts of certain countries. For purposes of international trade, there are three different types of boycotts. First, there is a primary boycott, which is when a country refuses to trade with another country. This is NOT the type of boycott that the EAR directly addresses. The EAR directly addresses secondary boycotts, which is when a country refuses to trade with an entity that does business with the country being boycotted. For example, a countrys refusal to do business with a country or company that does business with Israel would be a secondary boycott. The EAR also directly addresses tertiary boycotts, which is when a country refuses to trade with an entity who does business with companies on their blacklist.

On May 31, 2011, in an effort to increase the accuracy of complying with the Report of Foreign Bank and Financial Accounts ("FBAR") regulations, the Internal Revenue Service ("IRS") and the Financial Crimes Enforcement Network ("FinCEN") granted a one-year extension to a select group of individuals beyond the June 30, 2011 deadline. The new deadline is June 30, 2012 for filing the FBAR form, which reports a financial interest in, or signature or other authority over, one or more financial accounts in foreign countries. The extension applies to the individuals who only have signature authority over certain foreign financial accounts. The Notice (Notice 2011-1) defines the qualifying individuals as those who are either: 1) an employee or officer of a regulated entity (as defined in the FBAR regulations which were finalized on February 24, 2011) who has signature or other authority over and no financial interest in a foreign financial account of another entity more than fifty percent (50%) owned, directly or indirectly by the regulated entity (a "controlled person"); or 2) an employee or officer of a controlled person of a regulated entity who has signature or other authority over and no financial interest in a foreign financial account of the regulated entity or another controlled person of the regulated entity. All other persons that are required to file must comply with the June 30, 2011 deadline. Click here to review the Notice and the press release explaining the extension and those who qualify in more detail. --Elaina L. Blanks

On May 23, 2011, the Tax Court, in TC Memo 2011-110, made a determination that a British Consulate General (the "BCG") "trade officer" was a common law employee and not an independent contractor. The BCG initially classified the worker as an independent contractor, which resulted in the worker reporting his earnings and expenses on Schedule C of Form 1040 as well as making contributions to a simplified employee pension ("SEP") plan. In looking at the factors for employee classification as defined in IRC 3121, the Tax Court noted that the BCG exhibited the requisite control over the services provided by the worker in addition to permitting the worker to participate in the BCG's health and pension plans. Furthermore, the Tax Court determined that the worker's letter of appointment was clear in its creation of an employment relationship despite language in the letter stating that the worker was "self-employed for tax purposes". Finding that the worker acted in good faith by consulting with his long-term tax return preparer who agreed with the initial position, the Tax Court declined to impose accuracy-related penalties under IRC 6662(a). Click here for a copy of the Tax Court Memo. --Elaina L. Blanks

If your company is supplying goods pursuant to a government contract, then the International Traffic in Arms Regulations ("ITAR") may apply to your product. The broadest category included in ITAR applies to any other product, service or technology with substantial military capability that was developed or modified for a military use. Developing products for a U.S. military customer can result in the product or service being subject to ITAR. The ITAR applies even if the companys only customer is the U.S. Government and even if the company does not ship any products out of the U.S.

In order to reduce costs, ocean carriers are beginning to phase out their long standing practice of providing chassis to their customers. Port truckers have always been responsible for bringing the containers to and from the terminals; however, the carriers have provided the chassis with the container as a unit. The chassis are necessary to carry shipping containers; therefore, truckers will be forced to find another way to obtain and pay for these chassis.

As reported by Tax Notes Today on March 22, 2011, the IRS, in program manager technical assistance, made the determination that awards paid to nonresident alien individuals under IRC Section 7623 ("Whistleblower Awards") are deemed to be compensation for services and therefore subject to withholding taxes on the US source portion unless exempted by a US income tax treaty with the foreign country. Section 7623(a) gives the Secretary authority to pay money to individuals that affirmatively bring information to the Secretary's attention for either detecting underpayments of tax or detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws. The payments must be paid from the proceeds of the amounts collected due to the information provided. The amount generally varies between 15% and 30% but can be limited to no more than 10% if the office determines that the information provided is not the principal basis for the administrative or judicial action taken. The determination cites a prior revenue ruling that characterized a payment made to an informant under Section 7623 as compensation for personal services for purposes of applying the U.S.- Canada income tax treaty. While the tax treaty used in the ruling is no longer in force, the determination highlights that the ruling has not been rendered obsolete. Furthermore, the determination confirms that, despite the characterization of the payment as compensation for services, no employment relationship is created between the IRS and the informant. Finally, the determination provides information regarding the treaty exceptions that would generally exempt a nonresident alien whistleblower from withholding. This determination cannot be used or cited as precedent. For a copy of the Tax Notes Today article reporting the determination, please click here.

On April 21, 2011, the US Tax Court held that an individual (the "Taxpayer") convicted of tax evasion was liable for income taxes on payments representing consulting fees that the Taxpayer had delivered to multiple Swiss bank accounts of a corporation controlled by the Taxpayer. In 1993, the Taxpayer formed a British Virgin Islands corporation (the "Corporation") and opened bank accounts in Switzerland in the name of the Corporation. The Taxpayer provided consulting and other services to various companies and governments and requested that his clients transfer the money representing payment for those services to the Corporation's accounts in Switzerland. From 1993 through 2000, the Taxpayer failed to include those amounts as income in any of the Taxpayer's tax returns. In 2003, the Taxpayer pled guilty to tax evasion for those years. The IRS sought to hold the Taxpayer liable for tax on all of the payments made to the Corporation's bank account for the Taxpayer's services but the Taxpayer contended that only the investment income earned each year by the accounts should be taxed and that the consulting fees should not be taxed until those amounts are distributed to him. The Tax Court noted that all amounts deposited to the Corporation's accounts during that timeframe were received for services that the Taxpayer rendered to third parties. Furthermore, the Tax Court noted that the Taxpayer admitted that the Corporation's accounts were opened for the express purpose of holding funds and income received by the Taxpayer and that the usage of the Corporation was an impermissible assignment of income. Click here for a complete review of the opinion, including additional discussion regarding other issues that were decided.

Importing goods into the United States presents an exciting new opportunity for many businesses; however, you must ensure your company complies with applicable rules beforeimporting. Under the Customs Modernization Act (Title VI of the North American Free Trade Agreement Implementation Act [P.L. 103-182, 107 Stat. 2057]), the importer is legally responsibile for declaring the value, classification, and rate of duty applicable toimported merchandise. In order to fullfilthis responisbility, you should be aware of the following: 1) the country of origin of the merchandise and manufacturer; 2) the composition of the merchandise; 3) the intended use of the item; and 4) pricing/payment information (in order to properly determine the value of the shipment). For more information on the classification of merchandise, youcan consult the Harmonized Tariff Schedule (HTS) which contains the actual HTS number and tariff classification guidelines that explain how to properly classify merchandise. Additionally, importers can request a written ruling fromU.S. Customs Border and Protectionfor the proper HTSUS classification and rate of duty for their merchandise. When requesting a binding ruling, importers should follow the procedures outlined in Part 177 of the Customs Regulations (19 C.F.R. 177). You may also wish to research the results of previous ruling requests by using the Customs Rulings Online Search System (CROSS) http://rulings.cbp.gov/.